To be eligible you must be a ‘Small Business Entity’ which is defined as a business with an annual aggregate turnover of less than $2 million. The immediate write-off (or tax deduction) is available for assets purchased and ready for use from 7.30pm on 12 May 2015 (Budget announcement) through to 30 June 2017. In order to take advantage you must not only purchase an asset during the time period under $20,000 but you also need to use the small business simplified depreciation rules for income tax purposes.
What is included?
The $20,000 threshold replaces the $1,000 threshold that historically applied to Small Businesses. Both new and second hand assets are eligible and items such as computers, reformer beds, ultrasound machines and other equipment are all included. Items purchased as trading stock however are not eligible.
If your business is registered for GST and the asset is used exclusively in the business, the cost of the asset can be up to $21,999 (GST inclusive) and still qualify, as the threshold is based on the depreciable cost of the asset, which does not include GST.
The threshold is on a per asset basis, which allows for multiple assets to be purchased and the immediate deduction can be claimed for each asset.
As indicated, to be able to use the new measures your Small Business must use the simplified depreciation rules. These rules act to pool the cost of all assets together and apply standardised depreciation rates to the pool balance.
The change in legislation increasing the threshold from $1,000 to $20,000 mean that assets pooled for the 2014 -2015 financial year will consist of the following;
- Assets costing $1,000 or more and purchased between 1 July 2014 and before 7.30pm on 12 May 2015; and
- Assets costing $20,000 or more and purchased after 7.30pm on 12 May 2015 to 30 June 2015.
An added benefit of the new increased threshold is that if the pool balance is below $20,000 after adding the purchased assets for the year, the entire pool balance can be written off and claimed as an immediate tax deduction.
If at a later stage you sell the asset for which an immediate deduction has been claimed, the entire sale proceeds are included in the assessable income of the business and subject to income tax.
Personal use assets
If your business owns assets that have both a business and personal use component, then the original purchase price of the asset is used to determine eligibility. For example if an asset is purchased for $25,000 and has 50% business and 50% personal use, even though the $12,500 business portion of the asset is below the $20,000 threshold, the total cost of the asset itself is above $20,000 and therefore not eligible for the immediate deduction.
It is important to note that the new measures only act to bring forward a tax deduction that your business would have otherwise been able to claim as depreciation in future years. Therefore the true saving can only be quantified as the time value of money in paying less tax today than in the future.
The decision to purchase new assets for your Practice should be considered carefully. Whilst the new measures do have the benefit of claiming an immediate tax deduction, the decision should not be purely based on this factor alone.
If you would like to discuss whether your Practice is eligible and potential benefits please contact the William Buck Health Services Team at firstname.lastname@example.org.
Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice. William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. Liability limited by a scheme approved under Professional Standards Legislation. This information is current as at 26th June 2015.